Structuring Leveraged Loans: Tax Concerns, Multinational Entities

Description

Tax reform and other recently implemented regulations have made significant changes to the tax rules that impact leveraged finance transactions. Counsel to both borrowers and lenders need a working knowledge of these changes concerning both existing and future loans.

New limitations on the deductibility of interest may force leveraged companies to reconsider their global capital structure and pursue measures such as paying off debt held by U.S. entities and moving debt offshore to foreign affiliates. With the reduction in the corporate tax rate and the application of a new special passthrough tax rate, lenders and borrowers will likely revisit how tax distribution provisions are negotiated and drafted.

Various rules impacting multinationals may affect collateral packages and mandatory prepayment provisions. Lenders may ask borrowers to repatriate foreign proceeds to make prepayments, although the parties will still need to consider state or non-U.S. withholding taxes that could be triggered.

Tax reform and subsequent changes to the rules relating to controlled foreign corporations (CFCs) will cause some entities to become CFCs that weren't before. For some multinational groups, this may result in additional subpart F income to U.S. shareholders and may also lead to shrinking the base of credit support available in a leveraged loan.

Listen as our authoritative panel examines these and other leveraged loan structuring issues after tax reform. The panel will also discuss adjustments that should be made to loan documentation to minimize tax exposure for the borrower while protecting the lender.